Lockshin - Get wise to your advisor how to reach your investment goals without getting ripped off

Contents

Cover image: iStockphoto / David Franklin

Cover design: Paul McCarthy

Copyright 2013 by Steven D. Lockshin. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Lockshin, Steven D.

Get wise to your advisor : how to reach your investment goals without getting ripped off / Steven D. Lockshin.

pages cm

Includes index.

ISBN 978-1-118-70073-0 (cloth); ISBN 978-1-118-70069-3 (ebk);

ISBN 978-1-118-69886-0 (ebk)

1. Investment advisors. 2. Financial services industryEvaluation. 3. Investments. 4. Portfolio management. 5. Finance, Personal. I. Title.

HG4621.L54 2013

332.6dc23

2013013314

To my wife, Allison, my true north and the ultimate fiduciary in my life.

Preface

As I write these words, a battle is playing out in Washington, DC. This David-versus-Goliath contest pits investors against the investment brokerage industryand its not looking good for investors.

In the wake of the 2008 market crash and the ensuing financial crisis, lawmakers directed the Securities and Exchange CommissionWall Streets copto hold stock and insurance brokers to a tough investor protection standard. The brokerage and insurance industries went ballistic, launching an all-out effort to delay, water down, and otherwise smother the coming standard before it could breathe a breath of mature life.

How exactly would this frightful new standard impact Wall Street? It would force brokers to put clients interests first and it would likely make them liable if they profited unjustly at the cost of the average investor. That might seem like a good, commonsense idea to you and me. But Wall Street thinks very, very differently.

I want to be clear that many Wall Street brokers are truly concerned with doing the right thing for their clients. But as youll learn, even the good guys operate in an industry so riddled with conflicts of interest that the temptation to put profits before people exerts a powerful and constant pull. This tainted environment is enabled by the regulatory standard that the industry is fighting tooth and nail to protect, a mushy standard that allows brokers a ton of, to put it politely, ethical wiggle room. Replacing that standard, the industry fears, will hurt its profit margins. And on Wall Street, profit margins are not, repeat not , to be messed with. After all, Wall Street, too, has its own investors to serve.

The bad news for consumers is that right now, the brokerage industry appears to have the upper hand in its struggle with an SEC weakened by turnover and trapped in inertia.

For now, Wall Streetwhich is the first place consumers look when they need investment and financial advicehas those consumers right where it wants them. Make no mistake, much of the guidance that is so lucrative for brokers is demonstrably damaging to investors. Often, the investment product thats not quite right for the client is oh-so-right for the broker because of the fat sales compensation thats at stake.

And even when investors catch on to the fact that theyve been wronged, they too often find little recourse. The typical investor unwittingly signs away his right to sue when he signs a brokerage contract. Instead, such investors are granted the ability to pursue arbitration through a potentially lengthy and expensive process that is controlled by FINRA, the brokerage industrys self-regulator. Understandably, many investors dont even bother.

I am writing this book because things dont have to be this way. You, the consumer, have the power to stop it. And once you learn exactly how Wall Street operateshow your best interests are so often placed secondary to profitsIm confident that you will send a message to the establishment by refusing to go along with the status quo. You, as an individual consumer, can help to tilt that status quo toward a new realitya reality in which the needs of the consumer are placed first.

My goal, as the title says, is to wise you up. Part of my job in doing that is to pull back the veil on Wall Street (as well as non-Wall Street offenders who serve their needs before yours). After you read this book, youll understand just how conflicted the mainstream brokerage industry is. Youll learn how the brokers, regulators, and lobbyists cooperate to enrich themselves and the industry at the consumers expense. And youll discover Wall Streets chameleon personalityhow brokers and the big firms they work for confuse and mislead consumers into believing theyre your allies.

But this isnt just another salacious look at how Wall Streets sausage is made. Most of that information is out there in one form or another. My mission in writing this book is also to provide information that can empower you. Simply stated, there are trustworthy financial advisors out there. It is possible to weed out conflicted advisors and find the ones that have the qualifications, the ethical standards, and the objectivity to serve as truly valuable allies.

At this point you may be asking yourself, What does he have to gain from writing this book? Whats his angle? I hope your skepticism is at least a little arousedbecause consumers of investment and financial advice desperately need to be more skeptical. The answer is that, yes, I conceivably have something to gain in having you read this book. Inevitably, somebody may contact me because something in this small guide struck a cord with him or her.